Pay off your mortgage Quickly

[Agnostic]

Some very informative viewpoints here thanks folks.

Anywhere care to comment on putting an IP into an SMSF to reduce taxable income?

Pros and Cons?

Pros:

1. Higher degree of control of your investment than purchasing shares as a passive shareholder.
2. If you have personal expertise in property investment then your SMSF could increase your resources to invest in that sector.

Cons:
1. Only really suitable for tax-positive properties, unless you have substantial taxable income already in the SMSF, but even then, you are only getting deduction at 15c in the $.
2. Loss of flexibility - with regards to renovations and subdivision.
3. Inability to move in if circumstances change.

Thoughts:
1. More suitable for commercial properties, or the business property if a business owner.
2. Residential rentals much more beneficial in general if owned directly or via a company/trust entity.

 

[fishtaco]

I started paying my first ever mortgage weekly on advise from an almost non english speaking polish guy

Paying a mortgage weekly or fortnightly makes very little difference when the interest is accrued monthly (even if it is calculated daily).

If you pay $2000 per month or $461 per week, how are you paying it off faster ?

?? If you pay your daily interest charge weekly off your principal it counters the compound interest! Paying it daily would be perfect but you cant pay daily.

You are doing something very wrong if you pay weekly and still pay the same interest monthly as you would if you just paid monthly! interest is calculated daily and charged monthly as compound interest.

Seems you may need a better mortgage contract! lol

 

[trew]

Seems you may need a better mortgage contract! lol

I think you need a better understanding of mortgages

If the accrued interest is added on the 1st of the month and your monthly payment is on the 1st, the interest added is immediately paid down - no compound interest

If you pay weekly, you haven't paid the interest added on the 1st down until the fourth week of the month - you are paying compound interest

Paying weekly doesn't make any difference - it may even cost slightly more

 

[SilverDJ]

Seems you may need a better mortgage contract! lol

I think you need a better understanding of mortgages
If the accrued interest is added on the 1st of the month and your monthly payment is on the 1st, the interest added is immediately paid down - no compound interest

fishtaco is right if you interest is calculated daily. And with my loan, I could simply deposit every day if I wanted. But of course it was simpler to simply deposit a big lump when it came in.

 

[SilverDJ]

Thoughts:
1. More suitable for commercial properties, or the business property if a business owner.

Yes, commercial property is really nice for SMSF for two reasons:
1) They are generally more affordable and you can often buy them with existing cash in your SMSF, no messy loan needed. (If you borrow money in your SMSF then you have to set up another company to actually own it, it's messy.)
2) You can use it yourself if you are a Pty Ltd company (lease it to your own business). And you can effectively increase your SMSF deposit limit but paying both a lease and your regular contributions. Useful as you near retirement and want to cram as much in there as possible.

 

[trew]

fishtaco is right if you interest is calculated daily. And with my loan, I could simply deposit every day if I wanted.

Interest is calculated daily on all mortgages. Always has been.

Depositing every day wouldn't make any difference either.
If you deposited 1/30th of your monthly payment every day, you wouldn't have paid down the interest added to your loan until late in the month

 

[Old Codger]

G Log

"APRA released data showing that total bank exposure to residential mortgages was $1.19 trillion, of which an astounding $462 billion were interest-only loans."


That amazes, and worries, me!

OC

 

[SilverSurfer77]

G Log

"APRA released data showing that total bank exposure to residential mortgages was $1.19 trillion, of which an astounding $462 billion were interest-only loans."


That amazes, and worries, me!

OC

Link?

 

[House]

G Log

"APRA released data showing that total bank exposure to residential mortgages was $1.19 trillion, of which an astounding $462 billion were interest-only loans."


That amazes, and worries, me!

OC

Link?

Post 31 of this thread

http://forums.silverstackers.com/message-895235.html#p895235

G Log

"APRA released data showing that total bank exposure to residential mortgages was $1.19 trillion, of which an astounding $462 billion were interest-only loans."


That amazes, and worries, me!

OC

Why pay the principle at all? You're much better off going IO and keeping the principle part in the offset.

What's the breakdown on who's using the IO? I'll assume your assumption is that people only use IO because they can't afford P&I.

 

[Old Codger]

Trouble with a mortgage these days is that the newly weds want 4 beds, 2 baths, DLUG, and all the bells and whistles.

In a nice suburb of course!

Our first was 3 beds, 1 bath, no BIRs, NO garage or carport, NO driveway, NO insulation. (Donvale Vic)

Lived in that for near 9 years until house #2.

OC

 

[SilverDJ]

Trouble with a mortgage these days is that the newly weds want 4 beds, 2 baths, DLUG, and all the bells and whistles.
In a nice suburb of course!

I hate seeing TV interviews with young couples that say they can't buy a house in Sydney for under $1M and they have been "priced out of the market"

 

[Old Codger]

We had a plumber install a new hot water service, it turned out that he lived in the next street to our first home.

We bought it in 1964 for 5000 pounds ($10,000) house and land. (about 4 to 4.5 years salary then)

His house is now worth over $800,000! Looked it up on Google Earth, and it is about the same as ours.

We had no street lighting, no postie, and no garbage collection for a week or four. It was all just paddocks.




OC

 

[House]

Trouble with a mortgage these days is that the newly weds want 4 beds, 2 baths, DLUG, and all the bells and whistles.
In a nice suburb of course!

I hate seeing TV interviews with young couples that say they can't buy a house in Sydney for under $1M and they have been "priced out of the market"

They're even priced out of the Canberra market

There's no hope for these poor FHO sods :lol:

 

[AlRoss0908]

As far as I know if you repay your mortgage sooner, you may pay a huge fee for that

 

[GoldenEye]

As far as I know if you repay your mortgage sooner, you may pay a huge fee for that

I think this would depend on your bank's policy and your agreement.

 

[BiGs]

The smart thing to do with reducing interest rates is maximise your leverage into the aus property market. When you pay off 50%, go buy an investment property and increase that leverage back up to 3-4x. 8% medium annual house price increase in Australia since ww2. Compounded, that's capital doubling every decade. You then incorporate 3-4x keeping your LVR averaging at like 30% you are a multi millionaire in 10-20 years. Get on it. Soooo many millionaires in Australia now that just followed this. This even worked in the 70's with interest rates over 20%. Sure pay off your debt as fast as you can, but re-leverage yourself back in when you have the deposit value again. Anyone who says they just want to pay off their mortgage as fast as possible will be middle class until they die.

As far as I know if you repay your mortgage sooner, you may pay a huge fee for that

The trick is leaving it open with $1 debt so you can redraw on the entire loan any time you want. But yeah these options/restrictions are dependent on the product/bank you're with. Sacrifice rights and options like these and get a lower interest rate, if you want it all, you pay for it in the rate.

 

[Oddjob]

As far as I know if you repay your mortgage sooner, you may pay a huge fee for that

Depends....if you are on a floating / variable rate then it is very unlikely your mortgage agreement would a break fee incorporated into the T&C's. If if did, your bank shafted you.

If you had as fixed rate mortgage set back in the days of "kinda normal" interest rate levels say 5% fixed 3 years and you wanted to pay out your loan now when fixed rate mortgages are circa 2% for 2-4 years, then I suspect your bank / credit union would charge you a break fee as they will lose on interest income at 5% for the remaining fixed rate term. Standard T&C's in a fixed rate mortgage.